Challenge grants are one of the most useful ways to increase participation in a fund-a-need. Donors like to know that their money is being put to good use, and nothing lures potential donors like the possibility of their money being doubled. Challenge grants are a way to engage new donors, and they are a proven mechanism for encouraging donors to increase their giving and “step-up” a level.
It is difficult to obtain tens- or hundreds-of-thousands of dollars to use in a challenge grant. Many organizations get creative, and use multiple donors to cobble together one large challenge grant. This idea is great, as long as it isn’t “taking money out of room.”
We often get a challenge grant that has been created by supporters of the organization pooling their resources. And while this might seem like a good idea on the surface, I believe it actually hurts the performance of the fund-a-need in the long run. One thing that makes a fund-a-need successful is the visible presence of leaders within the organization participating in the fund-a-need.
Think about it this way, if someone invites you to sit at their table for their organization’s gala, and then proceeds to make a pledge to the fund-a-need, you take note; especially if it was one of the higher pledges. You would probably feel obligated to participate in the fund-a-need, and hopefully would do so at a level at least commiserate with the ticket price if not above.
But if the same person invites you to sit at their table, and then the auctioneer simply announces that “a group of supporters chimed in to create a challenge grant for tonight” it loses its impact. The supporter is no longer actively participating in the fund-a-need. Even if they stand up as a group to be recognized as contributors to a challenge grant, the amount they individually pledged is a mystery and thereby doesn’t apply as much pressure as if they’d raised their paddle.
Less people raising their paddles also means we’re losing potential momentum in the room, because all of those paddles are now remaining stationary. Challenge grants are nice, but it is better to have people raise their paddles at whatever level they were planning on participating than to have them sit on their hands and challenge the rest of the room. Active pledging applies more peer pressure, and generates more momentum for the fund-a-need as a whole.